On September 14, 1949, Yale University Press released a major new work — Human Action by the Austrian economist Ludwig von Mises. The following week, in his regular Newsweek column, Henry Hazlitt referred to the book as “a landmark in the progress of economics. . . . Human Action is, in short, at once the most uncompromising and the most rigorously reasoned statement of the case for capitalism that has yet appeared. If a single book can turn the ideological tide that has been running in recent years so heavily toward statism, socialism, and totalitarianism, Human Action is that book. It should become the leading text of everyone who believes in freedom, individualism, and . . . a free-market economy.”

During Mises’s lifetime, Human Action appeared in three revised editions. Now, twenty-three years after his death in 1973, a new, revised fourth edition has been issued by The Foundation for Economic Education. The new edition has been prepared by Bettina Bien Greaves, one of Mises’s closest and most dedicated friends after he came to the United States in 1940.

Now, almost half-a-century after its original appearance, it is worth reconsidering Human Action‘s significance and place in the history of 20th-century economic ideas.

It is useful to recall the state of the world when it first appeared in 1949. The Soviet system of central economic planning had been imposed by Stalin on all of Eastern Europe. In Asia, Mao Tse-tung’s communist armies were just finishing the conquest of the Chinese mainland.

In Western Europe, all of the major noncommunist governments were practicing what the German free-market economist Wilhelm Roepke called at the time “national collectivism” — a “combination of repressed inflation, collectivist controls, ‘full employment,’ exchange control, state monopolies, bilateralism, subsidies, fiscal socialism [and] ‘cheap money’ policies.”

In the United States, government policy was guided by what Henry Hazlitt referred to in a Newsweek column a few weeks before his review of Human Action as “ultra-Keynesian ideology.”

In Human Action, Ludwig von Mises opposed every one of these currents, plus many others in contemporary social philosophy, philosophy of science, economic theory and method, and economic-policy proposals. He challenged the foundations, logic, and conclusions of every facet of collectivism.

In the first part of Human Action, Mises argues against positivism, behaviorism, dialectical materialism, irrationalism, and tribalism. He demonstrates that each and every one of these conceptions of nature, man, and society are fundamentally flawed and contrary to a correct understanding of the human condition and the social institutions most conducive to human freedom and prosperity. In their place, Mises presents a rigorous defense of methodological, political, and economic individualism.

When Human Action first appeared, socialism was at its intellectual and political high-water mark. Government central planning was considered the scientific and progressive path to economic development. In 1920, Mises had argued that socialist planning was doomed to failure because with the abolition of private property over the means of production and the elimination of markets and competitive prices, the socialist planner would have no rational way of determining the economic value of resources for least-cost methods of production. In Human Action, Mises refined that argument, showing that market-based economic calculation through the price system was the institution whose development had enabled the emergence of a complex network of division of labor, without which modern civilization could never have arisen.

In 1949, Mises’s arguments were ignored or scorned as the reactionary misconceptions of a man out-of-step with the more enlightened economics of the postwar era. Now, in 1996, it is ever so evident that it was Mises who understood far better than the vast majority of his contemporaries the fundamental flaws in the socialist illusion — and why the socialist experiment was eventually going to fail.

In the pages of Human Action, his refined critique of socialism is placed within a wider setting of a brilliant and insightful theory of the market process. Unlike most of the economists of the time, Mises was critical of narrowly studying the market economy in the straightjacket of mathematical models of an imaginary “perfect” equilibrium. Equilibrium was, at most, a useful limiting case for understanding the conditions under which market supplies and demands would be in coordinated balance.

But the heart of any realistic theory of the market economy, Mises argued, is a comprehension of the market’s never-ending process of dynamic change and adjustment. The central actor in understanding the market process is the entrepreneur — the creative, forward-looking decision-maker-who anticipates the directions of future market demand and who imagines ever-new and better ways of combining the factors of production for consumer satisfaction; for it is the entrepreneurs who continually face moments of truth in the market when, in competition with each other, they discover whether profits will be earned or losses suffered, as a result of their risk-taking enterprises.

His theory of the market process led Mises to his critique of interventionism. The market economy is an intricate web of interrelated and interconnected actions by consumers, resource owners, and entrepreneurs. Government regulations and interventions inevitably generate distortions and imbalances that undermine the normal and relatively smooth functioning of the market process. Mises concludes that the market can operate most efficiently and responsively to changing conditions when it is left “unhampered” by government intrusions.

Finally, Mises’s writings on money, credit, and the business cycle, beginning with his 1912 book, The Theory of Money and Credit, showed that inflations and depressions are caused by government control and manipulation of the quantity of money. In Human Action, he restated this insight in the wider context of his refined exposition of the “Austrian” theory of capital and interest.

Almost fifty years after its first appearance, it is now generally accepted that socialism is, as Mises long ago argued, impossible. Government intervention and regulation are now more widely seen as harmful and counterproductive. And Keynesian economics is in general disrepute, with inflation understood to be the potential cause rather than the supposed solution to unemployment and recessions.

Mises has been proven correct on practically everything! It is, therefore, most appropriate that a new, revised edition of Human Action has appeared at this time, so a new generation can fully appreciate his contributions to 20th-century economics and social theory as a stepping stone to the 21st century.

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Dr. Richard M. Ebeling is the recently appointed BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel. He was formerly professor of Economics at Northwood University, president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).

Reading List

Prepared by Richard M. Ebeling

Austrian economics is a distinctive approach to the discipline of economics that analyzes market forces without ever losing sight of the logic of individual human action. Two of the major Austrian economists in the 20th century have been Friedrich A. Hayek, who won the Nobel Prize in Economics, and Ludwig von Mises. Posted below is an Austrian Economics reading list prepared by Richard M. Ebeling, economics professor at Northwood University in Midland and former president of the Foundation for Economic Education and vice president of academic affairs at FFF.